Lending, in simple terms, means the procedure where a lender (a person) who has surplus hard cash gives to a borrower (who is in need of money) and the borrower pays a certain amount of interest to the lender in lieu of a loan.There are various methods for a person to avail credit, like banks, NBFCs, credit unions, brokerage firms, licenced money lenders , relatives, etc. Each mechanism holds its own pros and cons. Money lending is the mechanism of providing credit facilities to a borrower at a specific rate of interest when he caters for his financial needs. This article gives a general overview of the role of moneylenders in facilitating finance in the economy.
Who are the money lenders?
Money lenders are generally people or small groups of individuals who provide short-term credit to small sections of society at a high rate of interest to the borrower. It is to be noted that the rate of interest on loans is usually higher than the band and financial institutions because the risk involved in providing credit is also high. The mechanism of money lending has existed since time immemorial. Money lenders have been in existence since ancient times. Moneylenders also provide credit facilities against gold, silver, food grains, etc. The business of money lenders is quite famous and is running successfully in rural and backward areas. For more information click best licensed money lender in Philippines.
Money lending’s role in facilitating finance
It is no doubt that financial institutions like banks and NBFCs (Non-Banking Financial Institutions) provide loans to individuals at a low rate of interest. Various mechanisms, schemes, and guidelines were set up by the government to provide credit facilities to small-scale farmers and small-scale industries with a minimum rate of interest and for a long term so that it leads to an enhancement in the purchasing power of the borrower.
Licensed money lenders are a great source of availing credit facilities. People prefer to take loans from money lenders . The rationale behind this is that banks, in lieu of providing loans to people, require more documentation and time as compared to moneylenders. Money lenders quickly approve the loan with the least documentation. They usually grant the loan on the basis of the credibility and credit score of the individual.
As we all know, each thing holds its own pros and cons. Banks provide loans at a low rate but a time-consuming process, whereas moneylenders quickly approve the loan but charge a high rate of interest. Initially, it was thought that moneylenders were not regulated, so they were not secure to avail loans, but now there are various guidelines and set rules which regulate moneylenders.